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CompanyVGG is thinking of buying a factory to meet the growing demand forits products. The following is the financial data regarding thisproposal.<?xml:namespace prefix = o ns ="urn:schemas-microsoft-com:office:office" />
Cost ofthe factorytoday $20 million
Annualcashflow $2 million
Life ofthefactory 15 years
Cost ofcapital 8%
1. CALCULATE THE FOLLOWING:
a. Payback period in years
b. Net present value.
2. Based on your answer for 1.b above, should thecompany buy this factory? Why or why not?
3. Bonus: 5 points
Now assumethat after 15 years, the factory can be sold for $12 million. Whatis the net present value?
CompanyVGG is thinking of buying a factory to meet the growing demand forits products. The following is the financial data regarding thisproposal.<?xml:namespace prefix = o ns ="urn:schemas-microsoft-com:office:office" />
Cost ofthe factorytoday $20 million
Annualcashflow $2 million
Life ofthefactory 15 years
Cost ofcapital 8%
1. CALCULATE THE FOLLOWING:
a. Payback period in years
b. Net present value.
2. Based on your answer for 1.b above, should thecompany buy this factory? Why or why not?
3. Bonus: 5 points
Now assumethat after 15 years, the factory can be sold for $12 million. Whatis the net present value?
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Elin HesselLv2
28 Sep 2019